europe.cnn.com Sunday, January 12, 2003 Posted: 8:58 PM HKT (1258 GMT)

Is OPEC pumping enough oil to promote global economic growth?

VIENNA, Austria -- OPEC leaders are meeting in Vienna to discuss raising oil production in a bid to slow rising prices.

OPEC -- Organization of Petroleum Exporting Countries -- called the meeting amid fears of supply problems caused by an ongoing strike in Venezuela.

The six-week old strike by political opponents seeking to oust President Hugo Chavez has forced a cut in the country's exports by about two million barrels a day.

Venezuela is normally OPEC's third-largest producer and a major oil supplier to the United States.

But Saudi Arabian Oil Minister Ali Naimi said OPEC's official output target of 23 million barrels a day should not be changed.

He told reporters that an increase in the target "would really flood the market."

OPEC pumps about a third of the world's crude supplies, which total 79 million barrels a day. (Feature)

Naimi acknowledged that the Venezuelan strike has deprived the market of crude, but said that OPEC's production ceiling should remain unchanged.

He declined to say how OPEC should try to compensate for the missing Venezuelan oil.

One possible solution would be for Venezuela's OPEC partners to increase their own production to cover the shortfall until Venezuelan exports can resume.

Neither Venezuelan Oil Minister Rafael Ramirez nor Ali Rodriguez, head of the country's state-run oil company, would say if he supported an increase in OPEC production.

Fears about a possible U.S.-led war against Iraq have increased the pressure on world oil prices.

Fears about a possible U.S.-led war against Iraq have increased the pressure on world oil prices.

Iraq has the second-biggest oil reserves after Saudi Arabia.

"We have to see what quantity is required," said Obaid bin Saif Al-Nasseri, oil minister for the United Arab Emirates.

OPEC President Abdullah bin Hamad Al Attiyah said Venezuela's strike has caused "a little bit of a shortage," but he too refused to predict how much oil OPEC might add to the market to compensate.

"I've heard a lot of scenarios, a lot of numbers, but still we haven't reached the magic number," he said.

www.bday.co.za

VIENNA - Opec energy ministers gathered in Vienna on Sunday to respond to calls for an increase in oil production to stave off an oil price shock threatened by a strike in Venezuela and possible war in Iraq.

Delegates attending an extraordinary meeting of the Organisation of Petroleum Exporting Countries (Opec) were expected to agree to pump more oil to help rein in prices which topped $30 a barrel in London and New York recently before easing back slightly.

Opec heavyweight Saudi Arabia sought to calm jittery oil markets, saying it would ensure there was adequate supply and could raise its own output if needed to 10.5 million barrels per day within two weeks, from a quota of 7.5 million.

But Saudi Arabian Oil Minister Ali al-Nuaimi said the 11-member cartel would probably leave its overall output quota unchanged at 23 million barrels per day, while compensating for the lack of supplies from Opec member Venezuela, where a six-week-old strike has cripped oil exports.

"There is not a shortage (of supply) in the international market, there is only a shortage from Venezuela, probably of two million barrels per day," he said.

"The ceiling of 23 million barrels per day, we will leave it," he told reporters ahead of the Opec meeting.

Venezuela sent a beefed-up delegation including Oil Minister Rafael Ramirez and the president of state-owned oil company giant Petroleos de Venezuela (PDVSA), Ali Rodriguez - a former OPEC secretary general - to join the talks.

Asked what Opec could do to help Venezuela, Ramirez said "stabilise the market," as he arrived for the meeting, without specifying exact measures.

Indonesia, Iraq, Kuwait, Iran and Libya did not send their ministers to the hastily called get-together, although they were still expected to be represented.

By filling the gap left by Venezuela the cartel, which produces about one third of the world's crude oil, aims to restore prices to within its target range of $22 to $28 per barrel.

In New York, reference light sweet crude February-dated futures traded at $31.68 per barrel on Friday, while London benchmark Brent North Sea crude oil for February delivery stood at $29.68 per barrel.

Analysts say some OPEC members, notably Saudi Arabia which has the most space in its production capacity, have in any case already been producing above their individual quotas.

"We believe that production from the Opec members outside of Venezuela has been rising steadily since the start of the strike and that the decision to be reached in Vienna is to make this formal," Deutsche Bank analyst Adam Sieminski in London said ahead of the meeting.

Although high oil prices boost producers' revenues, Opec is concerned that a price spike would jeopardise a global economic recovery and prompt consumers to switch to alternative sources of energy, thereby depressing oil demand.

Traders are growing nervous that a US-led war in Iraq might be launched before the strike in Venezuela is resolved, depriving world oil markets of around five million barrels of oil per day from the two producers, or even more if the war were to destabilise other Middle East suppliers.

The United States has strategic oil reserves of 600 million barrels it can dip into if necessary, but so far it has been reluctant to do so.

A source at the cartel's Vienna headquarters said that any rise in Opec production would take effect on February 1 at the earliest, and would probably be rolled back once exports recovered from Venezuela.

But with oil stock levels in consumer countries already very low, and the spectre of a war in Iraq looming large, analysts do not expect oil prices to fall too far even with the extra Opec crude.

AFP

www.zwire.com By: DEANNA SHEFFIELD, Citizen staff January 12, 2003

Lyondell Chemical officials have remained tight-lipped about Standard & Poor's recent decision to place the company under a credit watch.

Standard & Poor's red-tagged Lyondell Chemical's rating status because of concerns the company may not be able to acquire adequate supplies of Venezuelan crude for its refinery. The ratings agency remains concerned cash distributions to Lyondell Chemical may decrease well below expectations.

The designation could prove damaging for the chemical company, which at this point has retained their BB corporate credit rating. If the watch remains, Lyondell could have a difficult time securing low interest rates, assuming they still have interested lenders.

Lyondell-Citgo has already reportedly reduced its production of crude by as much as half because of the crude strike in Venezuela.

Lyondell-Equistar spokesman David Harpole declined to confirm or deny decreased production, noting only that the company "had not yet made an announcement."

Equistar Chemicals, a partner of both Lyondell and Millennium Chemical, has retained their BB corporate credit rating because Millennium provides the group with a measure of security.

During the watch period, Standard & Poor's officials will begin assessing other risk factors that may affect the company's rating.

Reported production cuts have increased concern the company may begin laying off employees. Approximately 1,000 people work at Lyondell-Citgo's refinery.

Lyondell owns 60 percent of the company. Citgo owns the remaining 40 percent, which is serviced by Venezuela's state oil company.

However, other crude refineries, including Shell in Deer Park, have not felt the crunch because they secure crude from Mexico, not Venezuela.

"I know Lyondell is having problems, but we're in good shape," said Shell spokesman Dave McKinney. "Our refineries are running normally; we're virtually unaffected by that."

www.etaiwannews.com Venezuelan standoff could make war in Persian Gulf more costly to America's economy than once anticipated 2003-01-12 / New York Times / WASHINGTON

The crisis in Venezuela is creating major new complications for the Bush administration's campaign to oust President Saddam Hussein of Iraq, causing oil shortages that would probably make a Persian Gulf war more costly to the economy than once anticipated, American officials and industry experts said.

The 40-day strike has virtually shut down Venezuela's oil industry, the fifth-largest in the world, and proven more difficult to resolve than the administration expected, the officials said.

Efforts to end the stalemate between President Hugo Chavez and his opponents have been hamstrung not only by the intransigence of both sides in Venezuela, but also mistrust toward American diplomats, the officials added.

Venezuela has for decades been one of the most dependable sources of petroleum for the United States, where industry analysts say the strike has already hurt some refineries and driven up the retail price of gasoline by at least a dime a gallon.

Those shortages will only worsen, and prices continue to rise, if the United States attacks Iraq, they predicted. That means that war in the Persian Gulf could prove more costly to the American economy than had been projected if the Venezuelan standoff is not ended soon.

For that reason the Bush administration has been debating plans to release oil from the Strategic Petroleum Reserve, which contains nearly 600 million gallons of crude. For now, though, the White House has decided to defer those plans, mainly to keep oil available in case of war in Iraq, administration officials said.

"A few months ago everybody thought that if we went to war in Iraq oil wouldn't be a major problem, because there was enough spare capacity to make up for lost Iraqi oil," said Larry Goldstein, president of the Petroleum Industry Research Foundation Inc., a research organization. "But no one then was contemplating lost Venezuelan oil."

"Now," he said, "we won't have enough spare capacity to take care of both those events."

The crisis could be compounded if President Chavez follows through on a proposal to split the government-owned oil company, Petroleos de Venezuela S.A., into two parts and restructure its central offices.

American officials say Chavez's true goal is to install political loyalists in place of the union leaders and senior managers at the oil company, known as PDVSA, who have joined the strike.

The result could be a more pliable but less efficient company that produces less oil than the roughly three million barrels a day that Venezuela produced before the strike, officials and experts said. That could leave the United States even more dependent on Middle Eastern oil, the experts said.

"Petroleos is one of the few state-owned oil companies in the OPEC group that approximates a normal integrated major oil company," said Leonidas P. Drollas, chief economist with the Center for Global Energy Studies in London. Echoing other industry analysts, Drollas added, "To break it up into anything sounds obviously politically motivated."

The Bush administration, acknowledging the growing danger from the Venezuelan strike, has stepped up its efforts to calm the oil markets, lobbying major oil exporters to increase production. At a meeting in Vienna this weekend, the Organization of the Petroleum Exporting Countries is expected to vote to increase production by 8.7 percent, or nearly two million barrels a day, officials said.

Some oil analysts argue that the administration should have moved faster to stabilize the oil market. Those analysts, along with some members of Congress, have urged the administration to release oil from the Strategic Petroleum Reserve.

Even a relatively modest "loan" of 20 million to 30 million barrels to American refineries would stabilize prices and ease short-term disruptions, giving the OPEC countries time to ramp up production. It typically takes 30 to 45 days for Persian Gulf oil to reach the United States.

The impact of the Venezuelan crisis has been widely underestimated by officials and consumers, oil experts said. Venezuela once exported 2.7 million barrels a day, 1.5 million barrels of that going to Untied States, or about 14 percent of America's crude oil imports.

Now, Venezuela says it is producing about 600,000 barrels a day, though outside experts estimate the volume at less than 400,000 barrels.

That means that more than two million barrels a day of Venezuelan crude have been removed from the global market, making this the worst disruption in supply since the Persian Gulf war of 1991, experts said.

www.gulf-daily-news.com VIENNA:

Saudi Oil Minister Ali Al Nuaimi said yesterday that Opec (Organisation of Petroleum Exporting Countries) would make sure there were no oil shortages worldwide, amid a strike in Venezuela and the threat of military action in Iraq.

"I can tell you I support making sure the market is well-balanced. There will be no shortage of supply in the market when the market is well-balanced," he told reporters upon arriving in Vienna for a meeting today of the Opec.

He refused to give figures for what is expected to be an increase in oil production in order to bring down prices in a market pressured by a six-week-old strike in Venezuela and the threat of a US-led war against Iraq.

"You will get the figures tomorrow (Sunday)," he said about the extraordinary meeting at its headquarters in Vienna where Opec is expected to increase its official output quota by between one and two million barrels per day (bpd) to help make up the shortfall caused by the general strike in Venezuela, a major supplier to the US.

Venezuela accounts for around 13 per cent of US oil imports. The strike there has caused US oil stocks to fall at a time when Washington needs them to increase as it prepares for a possible war on Iraq.

If the US launches a war in Iraq before the Venezuelan strike ends, markets could be deprived of about five million barrels of crude oil per day, or even more if the war were to destabilise other Middle East producers.

But the size of the increase remains hard to predict, both due to the Venezuela factor and the even greater potential for market destablisation that a possible US-led war in Iraq presents.

"With oil stocks in the US already close to estimated minimum operating levels, Opec has been forced to act," said Washington's Petroleum Finace Company in a weekend briefing to clients.

"The combination of the twin disruption scenarios represents a political nightmare of sorts for Opec, which will be accused of having failed its mission if prices climb above $35 a barrel."

Oil prices in the US recently spiked above $33 for the first time in two years and Washington is worried that sluggish economic growth could be snuffed out by a jump in energy costs.

Opec ministers have to decide exactly how much more crude to pump to contain prices within their preferred $22-$28 target range.